Apr 20, 2014

Diamond retailer Blue Nile prides itself on being one of the pioneers of e-commerce, but its first inkling that smartphones would bring yet another revolution to the online marketplace took the company completely by surprise.

In 2009, a buyer sitting on a chairlift on a Colorado ski slope was awkwardly browsing through the company's desktop-oriented Internet website on the small screen of an iPhone. He was looking for a New Year's gift and saw "something that he liked," said Jon Sainsbury, Blue Nile's head of strategy.

When the customer rang up the company and bought a diamond bracelet worth more than $100,000, it was a wake-up call for Seattle-based Blue Nile, which expects its customers to gravely ponder even the average $6,000 engagement ring.

"We didn't think anybody was going to make those kind of purchases on an iPhone," Sainsbury said.

Now about a quarter of all of Blue Nile's transactions originate, develop or finish on a mobile device. Nearly half of its traffic comes from phones and tablets.

The surge in mobile shoppers has brought about a "moment of incredible change and disruption," he said.

On the one hand, companies' opportunity to sell their wares online has grown as consumers browse on smartphones to kill time on a train ride or at the doctor's office. On the other, retailers must re-imagine and re-engineer their e-commerce platforms to be functional and enticing on devices that have small screens and cramped keyboards.

"It's definitely not as good an experience," said Sucharita Mulpuru, an analyst with Forrester Research.

That may be why smartphone-conversion rates - the percentage of customers who visit a retailer online and actually make a purchase - "are pretty terrible," she said.

Yet nearly half of the minutes consumers dedicated to online shopping in June 2013 were spent looking at a smartphone - up from 17 percent in 2010, according to a joint study by the National Retail Federation and ComScore. Seattle's Amazon, the world's biggest online retailer, said more than half of its customers shopped using a mobile device at some point during the holiday season.

Retailers this year "overwhelmingly" agreed that mobile commerce must be their top digital priority, according to the retail federation.

While smartphones are quickly becoming consumers' main window into the world of online shopping, retailers are discovering it isn't easy to offer them a good view.

Comparative shopping and customer reviews, which many consumers rely on when shopping on PCs, don't translate well into a 5-inch screen. Virtual keyboards are a pain for entering long credit-card numbers.

The result is that only 1 percent of visitors using a smartphone bought something from a site, whereas 4 percent of those using more traditional laptops or desktops hit the purchase button, according to a study by consultancy Monetate during the start of last year's holiday season.

And smartphone buyers tend to spend almost 20 percent less - $133.60 versus $167.31 on a PC, the report said.

So retailers are scrambling to crack the code of the smartphone era in order to make consumers feel more comfortable and spend more. They are crafting their sites with "responsive-design" elements that translate equally well on PC, tablet and mobile devices, and embracing the marketing possibilities offered by GPS location services, push notifications and touch screens.

Blue Nile, for example, recently launched a redesign of its site under responsive-design guidelines so it renders nicely on all devices, Sainsbury said.

Amazon has embraced the smartphone revolution in ways that sometimes irk its competitors. In 2010 it launched a price-check app that helped buyers walking through a retail store compare the price of an item with Amazon's price, just by scanning a bar code.

In February it integrated image recognition into its iPhone app so buyers can add an item to their Amazon cart by capturing its image.

Some analysts now see the smartphone as the critical link tying together an increasingly integrated shopping experience that extends from the store floor to the desktop computer. It's what retailers refer to as an "omni­channel" strategy.

Even brick-and-mortar companies such as Starbucks are starting to consider phones a critical part of the store experience.

"There's no question that the smartphone has become an essential part of the overall purchase process," said Barbara Kahn, director of the Jay H. Baker Retailing Center at University of Pennsylvania's Wharton School of Business. "The thing that seems to seamlessly connect online and offline is the phone."

Some companies seem to benefit more from smartphones than others. For flash-sales sites such as Zulily and Gilt, which rely on spur-of-the-moment action, the devices seem a natural fit, says Forrester's Mulpuru.

Seattle-based Zulily, which offers limited-time discounts on apparel, toys and home decor to busy moms, was founded in 2010, when smartphones were beginning to become mainstream. It produces thousands of photos and bits of text to showcase its wares, and how to present this content on a smartphone is a key consideration that influences everything from the choice of photographs to the size of copy, staffers say.

About 45 percent of its orders in 2013's final quarter were placed on a mobile device, up from 31 percent the previous year.

A handy cellphone resting on the bedside table helps mothers get in on deals that may have limited availability, said Luke Friang, Zulily's chief information officer. He added that Zulily's smartphone shoppers interact more frequently with the store than those that rely on a desktop or laptop computer, doing so several times a day.

When it comes to smartphones, the typical Zulily shopper "is all about it," Friang said.

While many retailers go for responsive design to have a single website that works well on PCs, tablets and phones, Friang said Zulily looks beyond that, aiming to unleash all the new tools offered by smartphones.

For example, it makes plenty of use of its smartphone app's ability to send push notifications to its customers. The app also has a section highlighting upcoming deals that enables shoppers to request a 6 a.m. Pacific Time notification for a specific category.

"You can't treat them the same," Friang said about desktop PCs and smartphones.

Brick-and-mortar stores in general have been pummeled by the rise of online commerce, but some are finding that smartphones are a perfect enhancement to their ubiquitous physical branches.

The app produced by pharmacy chain Walgreens is a good illustration of that harmony, Forrester's Mulpuru said. The app enables customers to refill their prescriptions by scanning them; set up reminders to take pills; and manage coupons, in addition to more standard services such as finding store location.

For Seattle-based Starbucks, the smartphone makes payment easier and ties together its popular gift cards and a growing loyalty program that rewards both visits to Starbucks and purchases of the company's products at the grocery store.

It hasn't been always been smooth sailing: Starbucks came under fire in January when a cybersecurity expert spotted a safety issue in the old iPhone app. The issue was quickly fixed and Starbucks has since launched a new version of its iOS app, but it highlights the technical complexities retailers have to wade through in this new territory.

Even for this decidedly brick-and-mortar retail empire, phones have become an unprecedented "communication and relationship vehicle" with its millions of customers, Chief Digital Officer Adam Brotman said in an interview.

Already smartphone payments account for 11 percent of its U.S. transactions. And Starbucks executives have said that they may experiment with placing coffee orders by smartphone app this year, as part of a stronger focus on digital and mobile technology.

As Starbucks CEO Howard Schultz recently put it, "All of us can see in our individual life that our phone is becoming our primary device for all kinds of things."

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